TDM strategies that involve price changes,
including road pricing, parking pricing, distance-based fees, fuel tax
increases and commuter financial benefits. This chapter discusses various
factors to consider when evaluating these strategies to insure that they
achieve intended objectives. These include the method used to collect charges,
their scope and scale, how well they reflect market principles, the quality of
transportation alternatives and how revenues are used.

Introduction

Efficient pricing is an important Market Principle. Prices provide market signals that can
result in more efficient resource use. Efficient prices indicate the full costs
of providing a good and the value the consumers place on using it. Prices that
are either too high or too low reduce market productivity, equity and overall
consumer benefits. Inefficient pricing contributes to many current
transportation problems.

Pricing increases economic efficiency. For
example, when travel demand exceeds a roadway’s capacity, efficient pricing can
limit traffic to optimal volumes, which avoids congestion, and allows higher
value trips priority over lower value trips, for example, allowing higher
occupant vehicles to outbid lower-occupant vehicles, and vehicles with valuable
loads and urgent deadlines to outbid vehicles with more time flexibility (this
type of efficiency gain is recognized by economists but often overlooked in
conventional engineering analysis, which measures efficiency terms of traffic
flow and operating costs). Similarly, efficient emission pricing can encourage
people who drive high annual miles or live in polluted areas to use cleaner
(less polluting) vehicles, and those who have high polluting vehicles (such as
older cars) to reduce their mileage.

Efficient pricing helps determine which
combination of goods and services offer consumers the greatest benefits. For
example, it would be inefficient for a consumer to take a trip that they value
at $2.00 if it Costs $5.00 to provide (including
vehicle, roadway, parking, crash risk and environmental damage costs). Such
trips make society worse off overall. Similarly, it would be inefficient if
many consumers would willingly pay the extra cost of a transportation facility
or service improvement, but they are not provided due to market barriers or
regulatory restrictions. This represents a lost opportunity for additional
consumer benefits.

Motorists are accustomed to “free” roads
and parking, and so tend to oppose pricing. But these facilities are never
really free. Consumers pay through additional taxes, increased rents and
mortgages, as employment compensation, and higher prices for consumer goods.
The choice is really between paying directly or indirectly. Although paying
indirectly is often more convenient, it violates a basic market principle, that
prices should reflect resource costs. Paying directly lets individual consumers
make trade-offs between Costs and Benefits. For
example, paid parking lets motorists choose between a more convenient but
higher priced parking spot, a less convenient but cheaper parking, or changing
modes to save on parking costs altogether. Paying directly rather than
indirectly gives consumers a new opportunity to save money by reducing their
use of costly parking facilities. Currently in North America, road user fees
only cover about half of roadway expenditures (Henchman 2013), and less on
congested urban corridors where roadway construction costs are particularly
high, causing motorists driving on less costly roadways to cross-subsidize
users of those facilities. Road pricing insures that users of a road bear its
costs.

Unpriced roads and parking are so well
established that many consumers consider them a right, and will object to tolls
and fees. But motorists’ right to free roads and parking conflicts with
consumers’ right to avoid paying for goods they do not need or want. Even
people who normally own and drive an automobile may sometimes prefer to use an
alternative mode or parking location if they can save on road or parking costs
– an option that is only possible if they pay directly or have a Cash Out option, which allows consumers to choose an
alternative subsidy if they use an alternative mode.

Opponents sometimes argue that road pricing
results in unfair double taxation: tolls in addition to fuel taxes (e.g., Citizens
Against Tolls). However, the costs (congestion impacts on other road users,
creating a need for increased road capacity) imposed per vehicle-mile tend to
be significantly higher than average under urban-peak conditions. For example,
urban-peak congestion costs each vehicle imposes on other road users are
estimated to range from 15¢ to 50¢ per vehicle-mile, and adding urban highway
capacity typically costs 25¢ to 75¢ per additional peak-period vehicle-mile (Transportation Costs). Cost recovery fees are therefore
far greater than the 3¢ per mile average fuel tax paid by motorist. Without
road pricing, urban-peak travel tends to underpay its true cost, resulting in
economically excessive demand. Congestion pricing (tolls that vary by time and
location) test motorists’ willingness to pay for the additional capacity they
demand: if tolls can fund roadway capacity expansion it can be considered
economically efficient, but if tolls reduce peak-period demand, highway
widening would not be cost effective.

Pricing opponents also argue that driving
is a necessity, so it is unfair to make it unaffordable to lower-income people.
But the Equity impacts of pricing depend on several
factors, including the portion of vehicle trips that are truly essential, the
quality of travel options available, and how revenues are used. Although some
vehicle trips provide Basic Mobility, such as
emergency travel and commuting to school and work, many vehicle trips are
discretionary (that is, they one of several possible options available to
consumers), either because the trip itself is of low value or because it could
shift to another time, mode, route or destination with minimal extra effort.
Giving motorists more incentive to change these trips increases overall
economic efficiency, improving mobility for those high-value trips (such as
emergency response, commuting and freight deliveries), reducing infrastructure
costs, and addressing other problems such as accident risk and pollution
emissions. By using pricing revenues to improve travel options, such as
investing in Public Transit, Ridesharing
and Nonmotorized Travel improvements, the incremental
costs to travelers of shifting mode can be reduced or eliminated, making most
people better off overall as a result.

Many TDM strategies involve price changes,
as listed in Table 1. These pricing strategies can provide many specific
transportation benefits, including reduced traffic congestion, road and parking
facility cost savings, reduced crashes, increased travel options, consumer
savings, environmental protection and more efficient land use, depending on the
type of pricing and other factors.

Pricing strategies may be implemented to
help achieve various goals and objectives, as described below.

·Demand management. This means that pricing is specifically intended to cause a
particular change in travel activity, such as a reduction urban-peak vehicle
trips, or a reduction in mileage by higher-polluting modes.

·Efficient land use. Pricing strategies can support strategic land use objectives, such
as encouraging infill development and more Accessible
land use patterns (Land Use Evaluation). Some pricing
strategies are specifically intended to affect land use (Smart
Growth Policy Reforms).

·Revenue generation. This means funding transportation facilities and services directly
through user charges, or applying general taxes to transportation activities.
This is sometimes associated with privatization of facilities such as highways.

·Fair competition among transport modes. This involves using pricing to correct existing market distortions
and favor a particular mode. It can involve setting prices based on the
relative costs of different modes, and using revenue raised by one mode to
cross-subsidize other modes as a Least-Cost strategy to
reduce traffic congestion, or for Equity sake.

These objectives often overlap. For
example, internalization of external costs is often a way to achieve demand
management objectives, and revenue generation from one mode may be used to
cross-subsidize another mode. Pricing programs are often intended to help achieve
a variety of objectives. For example, if tolls are used to fund roads, their
rates can time-variable in order to also help manage demand. The table below
compares demand management and revenue generation objectives for transportation
pricing strategies.

Table 2 Comparing
Road Pricing

Demand Management

Revenue Generation

Reduces vehicle traffic.

Is a TDM strategy.

Revenue not dedicated to roadway projects.

Requires variable rates (higher during
congested periods).

Travel shifts to other modes and times
considered desirable.

Generates funds.

Rates set to maximize revenues.

Is a capacity expansion strategy.

Revenue often dedicated to roadway projects.

Shifts to other routes and modes not desired.

Although pricing reforms tend to be quite
effective at changing travel behavior, they face barriers and constraints. They
require decision makers to overcome resistance, change existing planning and
funding practices, and address Social Equity concerns
(Baker, et al, 2008). Pricing reforms are best implemented as part of a
comprehensive package of TDM strategies, including improved Travel
Options (such as improved Walkability and Transit), plus Information and
Marketing to inform users about price changes and alternative modes.

Principles of Efficient Pricing

Market Principles
generally support TDM pricing strategies. Vehicle use imposes costs associated
with roads and parking, crash risk, and environmental impacts (Transportation Costs). Since consumers as a group
ultimately bear these costs, the question is not whether or not roads and
parking should be free, it is whether consumers should bear these costs
directly or indirectly.

Costs and
Prices

Cost refers to resources used to produce a
good or service, which may include money, time, materials, land or even risk
and discomfort. Costs and benefits have a mirror-image relationship: cost can
be defined in terms of reductions in potential benefits, while benefits can
be defined as a reduction in costs. Costs can be categorized in several ways:

·Some costs are fixed (not related to
consumption, such as vehicle registration fees and residential parking),
while others are variable (directly increases with consumption, such
as fuel and road tolls).

·Some costs are internal (borne directly
by the user of a good, such as transit fares and vehicle operating costs),
while others are external (borne by others, or by users indirectly and
not related to their consumption, such as pollution emissions and general
taxes used to fund transportation services).

·Some costs are market (commonly traded
with money in a competitive market, such as vehicles and fuel), while others
are nonmarket (not commonly traded in a market, such as crash risk and
air quality).

Price refers to perceived, internal, variable
costs, that is, the direct, incremental costs that individual consumers trade
off in exchange for using a good or service. The price of travel includes the
fare, vehicle expenses, travel time, risk and discomfort an individual bears,
but not external costs they impose on others (such as congestion delay, crash
risk or pollution costs borne by others), or costs a consumer bears
indirectly, such as general taxes used to fund roadways that an individual
pays regardless of their travel habits.

Efficient pricing requires that prices
reflect marginal (incremental) costs. Exactly what constitutes marginal cost
can vary depending on perspective. In the very short term, many costs are
fixed. For example, roads and parking facilities can be considered sunk costs,
if their construction costs are already paid, and if not used by motorists they
would simply sit empty. However, the land used for roads and parking facilities
generally have an opportunity cost, that is, they could be sold and used for
other purposes. There is some debate concerning whether transportation should
be charge cost-recovery prices, that is, with prices set to provide enough
recovery to fund the entire operation (Litman 2003; Kageson 2003). Although
cost recovery may not be required for direct economic efficiency, it is
justified for the sake of economic neutrality (Market
Principles), since prices for most other products reflect it. For example,
even a farmer who owns their land (rather than rents) will generally price
their product to recover operating costs and profits equivalent to rent.
Failing to charge cost recovery underprices transportation relative to other
consumer goods, which represents a market distortion. Of course, there may be
other reasons to underprice and subsidize a particular form of transportation
(for example, on equity grounds, or as a way to help stimulate development in a
particular area), but it is not justified as a general strategy.

Many Costs imposed
by motor vehicle use are either external (not borne directly by users)
or internal-fixed (borne directly by users, but not affected by how much
a vehicle use used). As a result, motor vehicle use is significantly
underpriced. Current vehicle pricing could be made significantly more efficient
and fair (Comprehensive Market Reforms).

Paying costs directly (what economists call
“internalizing costs”) is generally most fair and efficient (Reitveld 2003). It
means that consumers “get what they pay for and pay for what they get.” It
allows individual consumers to make their own decisions and trade offs between
different goods and services. As described by Adam Smith, one of the founders
of economic theory,

“When the carriages which pass over a
highway or a bridge, and the lighters which sail upon a navigable canal, pay
toll in proportion to their weight or their tonnage, they pay for the
maintenance of those public works exactly in proportion to the wear and tear
which they occasion of them. It seems scarce possible to invent a more
equitable way of maintaining such works. This tax or toll too, though it is
advanced by the carrier, is finally paid by the consumer, to whom it must
always be charged in the price of the goods. As the expense of carriage,
however, is very much reduced by means of such public works, the goods,
notwithstanding the toll come cheaper to the consumer than the; could otherwise
have done; their price not being so much raised by the toll as it is lowered by
the cheapness of the carriage. The person who finally pays this tax, therefore,
gains by the application more than he loses by the payment of it. His payment
is exactly in proportion to his gain. It is in reality no more than a part of
that gain which he is obliged to give up in order to get the rest. It seems
impossible to imagine a more equitable method of raising a tax.” (Smith 1776,
chapter 5)

Is Driving
Insensitive to Price?

Critics
sometimes argue that driving is insensitive to price, pointing to a news
article showing that a recent jump in fuel prices had little effect on
automobile use, or data showing vehicle ownership to be relatively high even
among lower-income households and in countries with high vehicle ownership
taxes. “Motorists love their cars too much, they won’t give them up,” critics
argue.

Such claims are
partly true and largely false.

As it is usually
measured, automobile use is inelastic, meaning that a percentage price
increase causes a proportionally smaller reduction in vehicle mileage. For
example, a 10% fuel price increase only reduces automobile use by about 1% in
the short run and 3% over the medium run. Even a 50% fuel price increase,
which seems huge to consumers, will generally only reduce vehicle mileage by
about 5% in the short run, a change too small for most people to notice.

However, if a
fuel price increase is sustained for several months, the mileage reduction
will probably triple to about 15%, as consumers take higher fuel prices into
account in decisions such as where to live, work and holiday.

Fuel prices are
a poor indicator of the elasticity of driving, because over the long term
consumers will purchase more fuel-efficient vehicles, so their annual fuel
costs remain constant. Over the last few decades the real (inflation
adjusted) price of vehicle fuel has declined significantly, and
vehicle-operating efficiency has increased. For example, the $0.35 paid for a
gallon of gasoline in 1955 dollars is worth $2.35 in current dollars, and an
average car of that time could only drive 12 miles on a gallon. Real fuel
costs are now a third lower, and an average car is nearly twice as efficient.
Not surprisingly, consumers have responded to these trends by purchasing
larger and more power vehicles, and driving more miles per year. Had fuel
prices increased with inflation, fewer SUVs would be sold and motorists would
drive fewer annual miles.

Critics also
point out that people who live in countries with high fuel taxes continue to
drive. However, residents of such countries drive more efficient vehicles and
fewer annual miles. For example, Fuel Taxes are about
8 times higher in the U.K. than in the U.S., resulting in fuel prices that
are about three times higher. As a result, U.K. vehicles are about twice as
fuel efficient, on average, so per-mile fuel costs are only about 1.5 times
higher, and automobiles are driven about 20% less per year, so annual fuel
costs are only 1.25 higher than in the U.S. Since per capita vehicle
ownership is lower, average per capita fuel expenditures are similar in both
countries. Similar patterns can be found when comparing other countries with
different fuel prices. This indicates that automobile use is sensitive to
price.

The relatively
low elasticity of driving with respect to fuel prices hides a much higher
overall elasticity of driving. Fuel is only about a quarter of the total Vehicle Costs. A –0.3 elasticity of vehicle travel with
respect to fuel price indicates that the overall price elasticity of driving
is about –1.2, making driving an elastic good with respect to total vehicle
costs. Pricing Reforms, Distance-Based
Fees, Parking Pricing, Road
Pricing and Carsharing are ways to charge
motorists directly for a greater share of their total vehicle costs. Because
carbon taxes are durable and predictable they tend to have higher
elasticities than other fuel price changes. Rivers and Schaufele (2015) find
that a five cent carbon tax causes an 8.4% gasoline demand reduction, about
four times higher than the 2.1% reduction caused by an identical five cent
increase in other market prices fluctuations.

The price sensitivity of driving is more evident
with respect to parking fees and tolls. A modest Parking
Fee or Road Toll can have a major effect on
travel demand. Some of this reflects changes in destination and route, but it
also includes changes in mode and travel distance (Pratt 1999). When per-mile
or per-trip costs increase, motorists tend to drive less and rely more on
other modes (NCHRP 2006; Prozzi,
et al. 2009).

It is not the
goal of most transportation demand management programs to take cars away from
people – rather, it is to moderate their use and encourage the use of
alternatives when appropriate. Pricing reforms can be an effective way to
help achieve this objective. Although individual price changes have modest
and gradual impacts, generally only affecting a small percentage of total
travel, they can make a significant contribution if implemented as part of a
comprehensive TDM program.

Mental
accounting refers to analysis of how consumers
think about pricing, taking into account factors such as price structures,
initial conditions, customer attitudes and Marketing
activities. In one example, Greenberg (2006) examines how mental accounting can
be applied to optimize Pay-As-You-Drive Vehicle Pricing
to achieve transport planning objectives.

Efficient Pricing

"The mode of taxation is, in fact, quite as
important as the amount. As a small burden badly placed may distress a horse
that could carry with ease a much larger one properly adjusted, so a people may
be impoverished and their power of producing wealth destroyed by taxation,
which, if levied in another way, could be borne with ease." Henry George

As discussed above, prices are efficient to
the degree that they accurately reflect the costs imposed by a particular
consumption activity. For this analysis it is useful to make a distinction
between road user charges, which means that special fees paid by road
users as a group, and road use charges, which implies that user fees
reflect the road use costs imposed by a user. For example, a fixed registration
vehicle fee is a road user charge, because the cost is paid by road
users, but it is not a road use charge, because it does not accurately
reflect the specific costs imposed by using a particular road, which varies
depending on various factors. Road tolls and mileage-based fees can be
considered road use charges, since they are directly related to how much
a particular vehicle uses a roadway. A fuel tax is a road use charge, but less
accurate than a toll, as discussed below.

Table 3 ranks common vehicle charging
options in terms of how well they represent the costs imposed by a particular
vehicle trip. Fees based on when and where driving occurs are best,
particularly to represent parking, congestion, crash risk and pollution costs.
This is now technically feasible using new Pricing Methods
such as in-vehicle computerized meters or vehicle tracking systems that
determine when and where driving occurs (CFIT, 2002).

This table compares how different types of
pricing reflect vehicle costs.

A fixed mileage-based charge that reflects
vehicle weight, risk factors and emission rates ranks second. By prorating
existing vehicle registration fees, distance-based fees can reflect both
vehicle value and vehicle use, resulting in charges that are more progressive
with respect to income, since higher income people tend to own more valuable
vehicles and drive more per year. Fuel taxes rank third. It is more marginal
than an external or fixed fee, but is not optimal since it does not reflect many
of the factors that affect vehicle costs, such as vehicle type, driver, and
travel conditions.

Fixed vehicle charges such as insurance and
registration fees internalize costs to vehicle owners as a group, but once they
are paid they have no effect on vehicle use. This is economically inefficient
and results in cross-subsidies between those who drive less than average, and
therefore impose relatively low costs, and those in the group who drive more
than average and impose higher costs. External costs, such as roads funded by
general taxes, unpriced parking, and uncompensated accident and environmental
impacts are least effective at reflecting costs.

Different costs imposed by vehicles require
different types of pricing. This table illustrates what type of pricing is
appropriate for internalizing different costs.

Tradeoffs are often needed between price
structure simplicity and complexity. Simpler structures are cheaper to
administrate and collect, and easier for consumers to understand and accept.
Research and experience indicate that consumers prefer simpler price structures
but will accept and respond to more complex structures if they are clear and
logical (Bonsall, et al. 2007).

Scale and Scope

Pricing can be implemented and evaluated at
various geographic scales:

·Point: Pricing a particular point in the road
network, such as a bridge or a tunnel.

·Facility: Pricing a roadway section.

·Corridor: Pricing all roadways in a corridor.

·Cordon: Pricing all roadways in an area, such as a
central business district.

·Regional: Pricing roadways at regional centers or
throughout a region.

Table 5 illustrates the geographic scale of
impacts from various pricing strategies. Congestion impacts tend to be
evaluated on particular facilities and corridors, while crash and pollution
reductions occur throughout a region and so require larger scale impacts.

Scope refers
to the range of objectives or impacts considered in analysis. Pricing
evaluation can be affected by the scale and scope of analysis. For example, if
an analysis only considers impacts on a particular facility or area, spillover
impacts on other roads, and other indirect impacts may be overlooked (Comprehensive Planning).

Base Case

Price evaluation should be based on incremental
(also called the marginal) costs and benefits. This requires defining
the Base Case, meaning what would happen without the price change (Evaluating TDM). The evaluation of pricing strategies can
be significantly affected by what is assumed to be the base case. For example,
the evaluation of an HOT lane depend significantly on whether the alternative
is:

·Less road capacity (no
additional lane).

·An unpriced, general use
lane.

·Additional HOV
capacity.

·A transit project.

Travel Impacts

Prices can have significant impacts on
travel behavior (Spears, Boarnet and Handy 2010; Zhang and Lu 2013). The Elasticities chapter describes methods to quantify and
predict these impacts. Different types of pricing will cause different types of
travel changes, which provide different types of benefits and costs to society
(Evaluation). For example:

·Road Pricing may shift
traffic problems to unpriced roads or different destinations.

·If travel alternatives
are good, pricing is more likely to cause mode shifts.

·If pricing is used to
fund roadway capacity expansion that would otherwise not occur, it may increase
total vehicle travel (Rebound Effect).

Efficient Road and Parking pricing both support and are supported by Smart Growth policies. Guo, et al. (2011) found that households
in denser, mixed use, dense, transit-accessible neighborhoods reduced their
peak-hour and overall travel significantly more than comparable households in
automobile dependent suburbs, and that congestion pricing increase the value of
more accessible and multi-modal locations.

The travel impacts of pricing depend on
many factors, including the quality of alternatives (competing routes,
destinations and modes), and the price structure used. If the price of an HOT
lane is too low, it will experience congestion, reducing the performance for
both single-occupant vehicle users and HOV users.

Benefits

More efficient pricing can provide various
benefits described below.

Congestion Reductions

Efficient road
and parking pricing tends to be among the most efficient ways to reduce Traffic Congestion.

Road and Parking Facility Cost
Savings

By reducing
traffic congestion and total vehicle travel, efficient pricing reduces the need
to expand roads and parking facilities. This can translate into savings to
governments, businesses and households.

Accident Reductions

Efficient road
and parking pricing can provide significant safety benefits (Litman 2011).
Crash reductions vary depending on the type of price change, the portion of
vehicle travel affected, and the quality of transport options available. If
implemented to the degree justified on economic efficiency grounds (for
example, cost recovery road and parking pricing), these reforms are predicted
to reduce traffic casualties by 40-60%.

Energy Conservation and Emission Reductions

Efficient
pricing tends to reduce transportation fuel consumption and emissions. Various
studies indicate that the long-run elasticity of fuel
consumption with respect to price is typically -0.3 to -0.7 (many estimates are
lower because they reflect short-term impacts), which means that a 10% price
increase reduces fuel consumption by 3% to 7%.

Improved Public Fitness and
Health

By encouraging
walking, cycling and public transit, efficient pricing tends to increase public
fitness and health.

Improved Mobility for
Non-Drivers

By increasing
demand for alternative modes, efficient pricing can help improve alternatives,
including walking and cycling conditions, and public transit services.

Pricing reforms are often evaluated based
on a single benefit, such as road pricing for congestion reductions, parking
pricing to reduce parking facility costs, or fuel pricing to reduce fuel
consumption and pollution emissions. However, most pricing reforms can provide
a variety of benefits, all of which should be considered in economic analysis.

Land Use Impacts

Pricing can have a variety of land use
impacts (Deakin, in TRB, 1994). To the degree that it increases transportation
costs to high-density areas, such as major commercial centers, it may encourage
urban sprawl, but if congestion pricing improves access to such centers (by
reducing congestion and funding transit improvement), it may encourage
clustering. Since these factors tend to offset each other, actual impacts will
tend depend on specific conditions. Levine and Garb (2002) argue that
congestion pricing can either increase or reduce overall land use Accessibility, depending on how it is implemented. In this
way, pricing can have significant long-term impacts on transportation patterns.

Public Acceptability and Impacts

Consumers generally oppose new or increased
prices, which can be a major barrier to the implementation of pricing reforms.
Several recent studies have examined citizen attitudes toward transportation
pricing options, particularly Road Pricing (Marginal Cost Pricing Integrated
Conceptual and Applied Model Analysis, www.mcicam.net).
This research suggests that several strategies can be used to increase public
acceptance of pricing strategies (Link and Polak, 2003; Ungemah and Collier, 2007; King, Manville
and Shoup, 2007; Walker 2011; Leiserowit et al. 2011):

·Pricing must be presented as a practical way to
solve transportation problems such as congestion, pollution and traffic risk.

·Pricing strategies must be perceived as an
effective solution.

·Revenues should be hypothecated (dedicated to
transportation improvements) and transportation alternative must be provided.

·Pricing must be perceived as fair.

·Citizens must feel involved in developing
pricing strategies.

·Benefits be concentrated so beneficiaries have
reason to advocate for implementation.

Recent experience indicates that, although
there is often popular resistance and skepticism about new road pricing
projects, opposition tends to decline once projects are in place and people
become familiar with them (Litman 2003).

Pricing strategies tend to increase the
range of available options to some motorists, although they can reduce
affordability or convenience to others. For example, on unpriced roads,
travelers have no alternative to being delayed by congestion, but HOT Lanes allow travelers to choose between driving in
congestion, avoiding congestion by ridesharing or using transit, or avoiding
congestion by paying a toll. This lets individual consumers choose the option
that best meets their needs for a particular trip.

Pricing may be considered to reduce
transportation options for low-income travelers who cannot afford an additional
vehicle fee, but the vast majority of motorists either have travel alternatives
(changes in travel timing, destination or mode), or can afford to pay an
additional fee, at least sometimes. For example, a $2 per trip road toll paid
200 times per year may seem like a major additional cost to motorists
accustomed to free roads, but it represents less than a 10% increase in total
average vehicle costs. Few low-income motorists drive frequently drive alone on
major congested highways or to commercial centers that are candidates for major
parking price increases.

Consumers generally consider any increase
in their prices to be harmful, although consumers can actually benefit overall
by paying directly rather than indirectly for roads, parking and other costs.
Direct pricing can give consumers a new opportunity save money. When roads and
parking are unpriced, consumers bear the costs regardless of how much they
drive. Even if roads are funded through fuel taxes, motorists who primarily
drive under lower-cost conditions (e.g., during off-peak periods that do not
contribute to the need to expand roadway capacity) tend to overpay their costs
and cross-subsidize other motorists who drive under urban-peak conditions.
Because costs are borne indirectly, motorists do not receive the full saving
that result when they drive less. For example, motorists can reduce costs
(traffic congestion, road and parking facility costs, crash risk, and pollution)
by reducing their mileage. With current pricing, these savings are dispersed
throughout society, benefiting other motorists. Only if motorists pay directly
for roads, parking, crash risk and pollution will they perceive a direct
financial savings when they reduce their mileage.

Similarly, if parking is supplied free with
an apartment or condominium, the cost is unavoidable. An alternative would be
to charge a lower rent for the apartment, and a separate rent for each parking
space. This lets residents save by reducing the number of vehicles they own.
Fuel price increases are often described as harmful to consumers and the
economy, but consumers and the economy can benefit overall from tax shifting
that uses revenues from increased fuel taxes to reduce other, more economically
burdensome taxes on income and investment (Comprehensive
Market Reforms).

If a consumer looks backward they may say,
“I’ve already paid for roads and parking through taxes or rents. I want free
roads and parking to get my money’s worth.” However, if a consumer looks
forward, they may say, “I don’t want to pay for parking unless I use it. I want
paid parking.”

Pricing tests users’ demand for facilities
and services. For example, increasing highway capacity often costs 10-50¢ per
additional peak-period vehicle mile (Transportation Costs).
Unless enough peak-period users are willing to pay tolls of that magnitude, the
project is not really a cost effective investment. Before adding capacity along
a corridor, a transportation agency can toll the existing roadway, which will
tend to reduce congestion. Only if the roadway is still congested when the toll
is high enough to recover costs of additional capacity (say, 35¢ per vehicle-mile,
or $3.50 for a 10-mile trip) would capacity expansion be considered cost
effective.

Few urban highways have sufficient traffic
demand to justify major capacity expansion. Muller (2001) found that of 16
recent U.S. toll road projects, demand and revenues on new toll road was
significantly lower than expected, with actual revenues averaging only 50-60%
of what was forecasted. Toll road authorities tend to overestimate traffic
volume growth and underestimate the price elasticity of vehicle travel. Based on
an extensive literature review, Williams-Derry (2011) concludes that toll roads
usually generate less revenue than forecasted because motorists are more price
sensitive than most models assume. Official forecasts frequently overestimate
actual traffic and revenue from tolled roads, particularly where drivers have
un-tolled alternatives.

Consumer Surplus Analysis

Direct pricing impacts can be evaluated
based on consumer surplus analysis, which is a method of measuring the
value consumers place on the goods and services they use. The basic technique
is to add the incremental cost to consumers who don’t change their travel, to
half the change in price times the number of trips that increase or decrease,
known as the rule of half, which represents the midpoint between the old
price and the new price, as described below.

For example, if a $1 per trip highway toll
increase causes annual vehicle trips to decline from 3 million to 2 million,
the reduction in consumer surplus is $2,500,000 ($1 x 2 million for existing
trips, plus $1 x 1 million x 0.5 for vehicle trips foregone). Similarly,
if a 50¢ per trip transit fare reduction results in an increase from 10 million
to 12 million annual transit trips, this can be considered to provide $6
million in consumer surplus benefits (50¢ x 10 million for existing
trips, plus 50¢ x 2,000,000 x 0.5 for added trips).

Many transportation models do not use
consumer surplus analysis. They measure vehicle travel, assuming that any
increase in travel time represents a cost to consumers, and any reduction in
travel time represents a benefit. They ignore the possibility that travelers
may sometimes prefer slower modes (transit, ridesharing, cycling and walking). Current
evaluation practices favor transportation improvements that increase vehicle
mobility, and undervalues TDM strategies that encourage more efficient travel
patterns, improve transportation options or result in more Accessible
land use patterns (Comprehensive Transportation Planning).
Hensher and Goodwin (2004) identify various ways that current methods for
evaluating travel time values tend to exaggerate motorists willingness to pay
congestion tolls.

The Traffic Choices Study, a Puget
Sound (Seattle, Washington area) congestion pricing pilot project, observed the
driving patterns of 275 volunteer households with GPS-equipped vehicles before
and after hypothetical tolls were charged for driving on major arterials and
highways (PSRC 2008). The results indicate that financial incentives can cause
motorists to make significant changes in travel activity (how, when and where
they drive). The study found that commuters responsiveness to congestion tolls
is significantly affected by the quality transit services available: the
elasticity of Home-to-Work vehicle trips was approximately -0.04 (a 10% price
increase causes a 0.4% reduction in commute trips), but increased to -0.16 (a
10% price increase causes a 1.6% reduction in commute trips) for workers with the
10% best transit service. This indicates that high quality public transit
service significantly reduces the price (road toll or parking fee) required to
achieve a given reduction in traffic congestion, a reflection of the smaller
incremental cost to travelers (i.e., less loss of consumer surplus) when they
shift from driving to high quality public transit.

Explanation
of the “Rule of Half”

Economic theory
suggests that when consumers change their travel in response to a financial
incentive, the net consumer surplus is half of their price change (called the
rule of half). This takes into account total changes in financial
costs, travel time, convenience and mobility as they are perceived by
consumers.

Let’s say that
the price of driving (that is, the perceived variable costs, or vehicle
operating costs) increased by 10¢ per mile, either because of an
additional fee (e.g., paid parking) or a financial reward, and as a result
you reduced your annual vehicle use by 1,000 miles. You would not give up
highly valuable vehicle travel, but there are probably some vehicle-miles
that you would reduce, either by shifting to other modes, choosing closer
destinations, or because the trip itself does not seem particularly
important.

These
vehicle-miles foregone have an incremental value to you, the consumer,
between 0¢ and 10¢. If you consider the additional mile worth less than 0¢
(i.e., it has no value), you would not have taken it in the first place. If
it is worth between 1-9¢ per mile, a 10¢ per mile incentive will convince you
to give it up – you’d rather have the money. If the additional mile is worth
more than 10¢ per mile, a 10¢ per mile incentive is inadequate to convenience
you to give it up – you’ll keep driving. Of the 1,000 miles foregone, we can
assume that the average net benefit to consumers (called the consumer
surplus) is the mid-point of this range, that is, 5¢ per vehicle mile.
Thus, we can calculate that miles foregone by a 10¢ per mile financial
incentive have an average consumer surplus value of 5¢. A $100 increase in
vehicle operating costs that reduces automobile travel by 1,000 miles imposes
a net cost to consumers of $50, while a $100 financial reward that
convinces motorists to drive 1,000 miles less provides a net benefit
to consumers of $50.

Some people complicate
this analysis by trying to track changes in consumer travel time, convenience
and vehicle operating costs, but that is unnecessary information. All we need
to know to determine net consumer benefits and costs is the perceived change
in price, either positive or negative, and the resulting change in
consumption. All of the complex trade-offs that consumers make between money,
time, convenience and the value off mobility are incorporated.

Equity Impacts

Pricing can have a variety of Equity (also called distributional) impacts. A
number of studies have examined the equity impacts of pricing (Fridstrøm 2000; Kalinowska
and Steininger 2009; Larsen, et al. 2012; Litman 1996; McMullen,
et al 2008; Parry 2008; RAND 2009; Rajé 2003; Santos
and Rojey 2003; Vickrey 1992). In fact, most transport pricing studies and
project give considerable attention to equity issues. Pricing strategies often
succeed or fail based on how equity impacts are perceived by stakeholders, and
how well equity concerns are addressed in the planning process.

Horizontal Equity

Horizontal equity (or fairness) refers to whether people are treated equally.
It assumes that policies should apply equally to everybody, without favoring
one individual or group over others. It implies that consumers should bear the
costs they impose (“get what you pay for and pay for what you get”), unless a
subsidy is specifically justified.

Pricing that more accurately reflects costs
tends to increase horizontal equity. For example, direct road and parking
pricing is generally fairer than paying indirectly, because the people who use
a facility bear its costs. Even if costs are borne by motorists as a group
through fuel taxes or insurance fees, more accurate pricing reduces cross-subsidies
between different types of motorists.

Road pricing and highway privatization are
often criticized on the grounds that they represent the transfer of public
resources to benefit one group of citizens at others expense. Congestion
pricing benefits higher income motorists who have a high ability to pay, and it
can increase congestion delays to other road users. For example, pricing on a
particular highway or lane can cause spillover traffic onto other, unpriced
roads or lanes (Levinson, 2002; Safirova, Gillingham and Houde, 2007). From
this perspective, road pricing can be considered comparable to public financial
support for an exclusive club that is only affordable to wealthy residents.
Roadway privatization allows private companies to reap profits. Although
privatization advocates argue that such projects are privately funded and
therefore no different than other commercial investments, in practice such
projects often include various public subsidies, such as use of public
rights-of-way without full rent or tax payment.

These inequities can be offset if some of
the benefits of road pricing and privatization are distributed to lower-income
motorists and non-drivers. For example, all households can be given a certain
number of free peak-period trips or vehicle-miles on priced roads each year, as
a way to provide Basic Access (an occasional urgent
trip during peak periods), and to represent the public investment in such
facilities. To the degree that public resources are invested in priced roads
and that privatized roadways do not pay full rent or taxes on their
rights-of-way or other investments, horizontal equity justifies that road
pricing revenue should be used in ways that benefit lower-income people and
non-drivers, such as reductions in general taxes, rebates to all households or
public transit investments (Litman, 1996; Mayeres, 2001).

Critics also argue that road pricing is
horizontally inequitable because it represents double taxation. They argue that
motorists already pay for highways through fuel taxes and other roadway user
fees. This argument can be challenged on two grounds. First, roadway user fees
do not cover the full costs of roadway use. In the U.S., a third of roadway
costs are funded through general taxes, and there are several other additional
uncompensated external costs of vehicle use, including roadway land value,
traffic services, parking subsidies, delay to nonmotorized travel, crash risk
imposed on other road users, and environmental damages (Transportation
Costs and Benefits). This suggests that additional road user fees can be
justified on horizontal equity grounds. Second, the vehicle trips that are
tolled tend to have relatively high roadway capacity costs. Accommodating an
additional peak-period vehicle trip often costs 25-50¢ per vehicle mile, many
times greater than the 3-5¢ per mile paid in existing road user fees (Transportation Costs and Benefits). Road tolls and
congestion pricing can be considered an additional payment for the higher costs
imposed by driving on major new highways, which reduces existing
cross-subsidies from motorists who seldom drive on such facilities to those who
do frequently. Motorists who regularly commute on urban highways are consuming
expensive road space and so their fuel taxes underpay their true costs, while
motorists who do not make special demands on the road system may overpay.

Horizontal and vertical equity objectives
often conflict. For example, some people argue that horizontal equity demands
that vehicle user fees be dedicated to roadway improvements. For this reason,
many U.S. states have constitutional amendments that dedicate all vehicle fuel
taxes to roadway expenditures, and some people argue that road tolls should
only be used to fund highways (Roth 1996). However, this virtually guarantees
that such fees will be regressive overall, since the revenues cannot be used in
ways that significantly benefit non-drivers, such as improved non-motorized
facilities or transit services. The requirement that vehicle user fees be
dedicated to roadway improvements is not justified if vehicle traffic imposes
residual external costs. Least Cost principles may also
justify using congestion toll revenues to fund alternative transportation
improvements, without contradicting horizontal equity, if that is the most cost
effective way to reduce traffic congestion (cheaper than expanding highway
capacity).

Pricing that corrects existing policies that
favor automobile travel over other modes can increase fairness. For example, Parking Cash Out gives non-motorists a benefit comparable
in value to free parking provided to motorists. Applying general sales tax to
vehicle fuel may increase horizontal equity (fuel taxes dedicated to roads are
a road user fee), unless there is a justification for providing a tax discount
to motorists.

Some pricing strategies involve subsidies,
but these are not necessarily unfair if automobile travel receives greater
subsidies. A subsidy to reduce transit fares may simply represent an
alternative way for non-drivers to receive their share of transportation
resources, comparable to road and parking subsidies that benefit motorists.
Even if alternative modes have a greater subsidy per mile, non-drivers
tend to travel much less per year than motorists, and so per capita
subsidies may be smaller (Social Benefits of Public Transit).

Vertical Equity

Vertical equity refers to the distribution of impacts between groups with different
needs and abilities. It implies that policies should insure that people who are
economically, socially or physically disadvantaged are not made worse off, and
if possible they are made better off. Impacts on people who are severely
disadvantaged (people living in poverty or who have severe physical
disabilities) are particularly important for equity analysis.

There is a long history of incorporating
vertical equity objectives into transportation policies (i.e., insuring that
lower income people have Basic Access). Adam Smith,
the founder of modern economics, wrote that, “When the toll upon carriages
of luxury coaches, post chaises, etc. is made somewhat higher in proportion to
their weight than upon carriages of necessary use, such as carts, wagons, and
the indolence and vanity of the rich is made to contribute in a very easy
manner to the relief of the poor, by rendering cheaper the transportation of
heavy goods to all the different parts of the country.” (Smith, 1776,
chapter 5)

Many vehicle pricing strategies are
considered regressive, meaning that they impose a greater burden on
lower-income consumers than on higher income consumers. A given road toll,
parking fee or fuel tax represents a greater portion of household budgets for a
low-income motorist than for a higher income motorist. Ryan and Stinson (2002)
evaluate the distributional impacts of revenue-neutral tax shifts, with higher
fuel taxes or mileage fees matched with reductions in general taxes now used to
subsidize roads. The results indicate that some lower-income households are
better off and others worse off, depending on their location, vehicle type and
mileage, and the type of tax reform employed. Schweitzer and Taylor (2008) find
that highway user fees are progressive compared with using general sales tax to
fund highways.

However, the regressivity of pricing
depends on the travel options available to disadvantaged groups and how
revenues are used (Litman, 1996; Mayeres, 2001). For example, charging for
parking at a totally Automobile Dependent worksite
burdens lower-income people more than the same fee applied at a more
multi-modal worksite, because fewer low-income employees drive, and the
incremental cost to shift modes is smaller. As a result, pricing tends to be
more equitable if it is part of an overall TDM program that improves Transportation Options, particularly for lower-income
people.

Using revenues to reduce equally regressive
taxes or provide services such as transit improvements, or returning revenues
as a rebate to all residents in an area, can be neutral or progressive with
respect to income.

Anti-Pricing Perspective

Automobiles are
normal consumer products that most households own and rely on. But
automobiles are expensive. Consumers think, “I already spend thousands of
dollars a year on my car – I can’t afford to spend more for additional fees.
I need my car and everybody has one. Its not fair to charge me more!”

But here are
some counter-arguments:

·Although some automobile use may be considered
“essential,” a large portion is discretionary, including recreational travel
and non-essential errands, commuting when other travel modes are available,
and the additional travel resulting when people choose to live in dispersed
locations.

·Consumers already pay the indirect costs of
automobile facilities through higher taxes, additional costs for retail goods
(for parking at stores) and lower wages (for employee parking). Road pricing
simply charges motorists directly rather than indirectly, which is more fair
and efficient. Put another way, the additional consumer costs of road pricing
can be offset by reductions in other consumer costs, such as taxes and retail
prices.

·Since vehicle ownership and use increase with
income, wealthier people receive the greatest share of automobile subsidies.
Lower income people are better off receiving direct subsidies that can be
used for any mode rather than subsidized automobile travel.

Transition and Transaction Costs

Transition costs are the temporary costs for markets to adjust to different prices.
For example, many motorists may regret purchasing a fuel inefficient vehicle if
fuel prices increase more than they expected. A business that purchased a
larger vehicle than necessary, on the assumption that fuel prices would stay
low has excessive overhead costs that reduce productivity. Similarly, consumers
or businesses that choose more automobile-dependent locations may face
transition costs until they can adjust to higher than expected transportation
costs.

Transaction costs are ongoing costs associated with collecting fees and enforcing
regulations. Pricing incurs additional equipment and administrative costs for
collecting fees, handling revenue and enforcing regulations. These overhead
costs often absorb 10-40% of total revenue from road and parking pricing.
Pricing can also impose time and inconvenience costs on motorists, particularly
with conventional tollbooths and parking meters. These are the true resource
costs of pricing to consider in economic evaluation (Levinson and Odlyzko, 2007).

Improved pricing methods and management
strategies can greatly reduce these transaction costs, making pricing more cost
effective and convenient to consumers (Pricing Methods).

Evaluating Economic Transfers

Pricing revenues are economic transfers,
not true resource costs. User fees and taxes represent costs to consumers and
revenue to facility owners or governments. Any analysis that accounts for fees
should account for revenues and vise versa.

Congestion pricing strategies usually make
most road users directly worse off (Hau, 1992). Net benefits to society occur
when revenues are considered, and so the overall value of the project, and its
public acceptability, depend on how revenues are used. If they are used
productively (substituting for a less efficient tax, returned to residents as a
rebate, or used to fund a valuable service) road pricing can provide net
benefits overall.

Spillover Impacts

Charging for roads or parking can spillover
problems if motorists shift travel to unpriced roads or park in other areas
that have free parking. The additional costs in these areas should be considered
when calculating benefits and evaluating equity impacts.

Economic Development Impacts

Low transportation costs are considered
important for economic development. For example, free parking is often used to
attract customers and to reward employees. Businesses in downtown areas where
parking is priced often feel at a competitive disadvantage compared with
suburban businesses that provide free parking. Similarly, many people worry
that road pricing would reduce business activity in certain areas, and create a
financial burden on industries that are highly dependent on trucking.

However, businesses ultimately bear the
costs of unpriced parking, directly or through taxes that they must pass on to
customers. Shippers have high hourly costs. Pricing that reduces parking
facilities or congestion delays can increase business productivity and profits
overall.

Best Practices

Below are best practices for implementing
efficient pricing. Also see congestion pricing guidelines by Vickrey (1992), and AASHTO (2003). Lindsey (2006) and
Parry (2008) provide an excellent review of congestion pricing issues.

·Define the goals and
objectives of pricing, such as whether it is primarily for demand management,
revenue generation, or a combination of both.

Examples and Case Studies

In 2002, the Puget
Sound Regional Council (PSRC) received a Federal Highway Administration grant
to conduct a pilot project to see how travelers change their travel behavior
(number, mode, route, and time of vehicle trips) in response to variable
charges for road use (variable or congestion-based tolling). The project,
called the Traffic Choices Study, placed Global Positioning System (GPS)
tolling meters in the vehicles of about 275 volunteer households. The project
observed driving patterns before and after hypothetical tolls were charged for
the use of all the major freeways and arterials in the Seattle metropolitan
area.

The primary aims
of the Traffic Choices Study were to (1) accurately describe the behavioral
response to the congestion-tolling of roadways, (2) better understand issues of
policy related to the implementation of road network tolling, and (3) test an
integrated system of technical solutions to the problem of tolling a large
network of roads without deploying substantial physical hardware on the
roadside. The study has met these goals and is the most comprehensive study of
demand response to network tolls in existence.

The study was
conducted between July 2005 and March 2006. Each participant was given a $1,016
debit account. A meter similar to those used in taxis was installed in their
car and, with the help of global positioning satellites that keep track of
where and when they drive, it subtracts a toll that varies depending on the
time of day and the route. For instance, if participants drove on Interstate
405 on a weekday between 4 p.m. and 7 p.m. – peak commuting hours –50 cents a
mile was subtracted from their account. If they make the same trip using city
streets after 7 p.m. the computer subtracted only 5 cents a mile. That means
the 17-mile trip to the Greenwood neighborhood cost as much as $8.50 during
peak periods, as little as 85¢ during evenings, and there are no tolls between
10 p.m. and 5 a.m. The dash-board meter keeps track of what each trip costs.

Primary
conclusions from the study include:

1. Observed response of drivers to tolls
suggests there is a dramatic opportunity to significantly reduce traffic
congestion and raise revenues for investment.

Motorists made small-scale adjustments
in travel that, in aggregate, would have a major effect on transportation
system performance.

When approached systematically, variable
road tolling, with investments of toll revenues, could make excessive
reoccurring congestion a thing of the past.

The scale of the revenues confirms the
theoretical expectation that “optimal” tolls would support expanding
transportation supply when and where it is needed most.

While most revenues are generated on a
small portion of the toll roads, the secondary road network (arterials) should
not be ignored, as diversion causes real problems with revenue loss and
displaced traffic.

Users demonstrating a willingness to pay
for high value roadways could expect that improvements would be forthcoming.

1.7 A conservative analysis of the
benefits of network tolling in the Puget Sound region indi­cates that the
present value of net benefits could exceed $28 billion over a 30-year period.

2. Not all aspects of a road network
tolling system have been fully demonstrated yet. But the core technology for
satellite-based (and whole road network) toll systems is mature and reliable.

2.1 The tolling system performed as
expected, and met basic system operating requirements. Further work on system
refinement and design of enforcement and billing systems would be required
prior to any full system deployment.

2.2 Tolling of dense road networks with
facilities that have only minimal access controls requires special attention to
issues of GPS accuracy, and the overall approach to facility use determination.

2.3 The approach to processing road use
information (within the on-board device or in the toll system back office) has
implications for user privacy, system stability, and data communica­tions
costs.

2.4 Enforcement would require other
facility use verification approaches (DSRC, video capture, mobile enforcement)
in addition to the GPS-tolling technology.

2.5 Installing in-vehicle tolling
devices is a costly logistical challenge, but relying on equipment to come
standard with new automobiles won’t be practical if it doesn’t represent a
trusted platform for road tolling.

2.6 The costs for GPS-based tolling
systems are dominated by the initial investment in in-vehi­cle tolling
equipment, and the communication of data during operations. Over the last few
years, costs have declined dramatically and are expected to continue to come
down.

3. A large-scale U.S. deployment of a
GPS-based road tolling program will depend on proven sys­tems, a viable
business model, and public acceptance of underlying concepts.

3.1 The public sector business case is
based on the sizable social benefits of road tolling. There are ways to
generate revenues that are less administratively burdensome, but these displace
economic activity, and fail to address traffic congestion.

3.2 A transition to road network tolling
would be costly and complex. It must be seen to be worth the sizable upfront
effort.

3.3 Road tolling will be seen as unfair
unless people understand that directly charging users addresses existing
inequalities across users of the transportation system, and improves over­all
economic efficiency, leaving society with greater resources available to
address remaining issues of fairness.

3.4 Concerns over user privacy depend on
what data leaves the vehicle, and what safeguards are in place to limit its
availability and use. A road tolling system can be developed such that user
privacy is maintained. But like so many things, this would come at a price.

3.5 Some experience and familiarity with
road tolling makes people more open to the concept, but all programs are unique
and will succeed or fail on their own merits. Road users are particularly interested
in the question of how revenues will be used.

A study of the impacts of tolling Puget
Sound region highways found that most poor households would not be substantially
affected. Impacts depend on which highways are tolled, the price structure, how
much poor travelers depend on those highways, the quality of travel
alternatives, and how revenues are used. Lower-income travelers who use routes
to be tolled and do not have ready alternatives will have their economic
well-being decreased. For the small number of poor households without
alternatives, the financial effect of tolling could be large. One hypothetical
simulation suggests that a poor household could pay up to 15 percent of its
income on tolls.

The question of whether tolls
disproportionately affect the poor relative to the non-poor requires a both a
definition of equity and a full policy proposal that specifies how tolls will
be collected and how tolling fits into larger public revenue flows. One equity
concern is whether relative effects on different groups differ. Our simulation
shows that the average poor household will pay a greater percentage of its
annual income on tolls than will the average non-poor household. That is, the
poor will pay a relatively larger share of their income than the non-poor.
Whether relative budget burden is the correct definition of equity and whether
the disproportionate burden could be offset by other revenue considerations are
larger political questions

Land Use Impacts (Guo, et al.
2011)

The study,
Intersection of Urban Form and Mileage Fees: Findings from the Oregon Road User
Fee Pilot Program found that households in denser, mixed use,
transit-accessible neighborhoods reduced their peak-hour and overall travel
significantly more than comparable households in automobile dependent suburbs.
The analysis suggests that congestion pricing both supports and is supported by
smart growth land use policies that create more
accessible, multi-modal communities.

Energy Price Reforms (Koplow 2010)

In a 2009 policy statement the G20 nations
(“Group of Twenty” nations that include the largest economies in the world)
committed to “rationalize and phase out over the medium term inefficient fossil
fuel subsidies that encourage wasteful consumption.” The benefits could be
substantial: International Energy Agency (IEA) and Organisation for Economic
Cooperation and Development (OECD) modeling has estimated that phasing out
fossil-fuel consumption subsidies would reduce greenhouse-gas (GHG) emissions
10% globally by 2050 relative to a business-as-usual scenario. Additional
economic and social benefits from phasing out production subsidies were not
modeled, but could also be substantial.

Experts recommend a number of institutional reforms to help reduce
and eliminate international fossil fuel subsidies:

·Establishing an independent oversight and review
board to review submittals for accuracy and coverage, with the ability to go
back to member to fill in gaps.

·Standardize the submittal process for subsidy
information as well as requiring standardized reporting of the claimed
justifications for keeping particular subsidies outside the purview of the G20
phase out.

·Initiating discussion and research on an
appropriate secretariat to oversee reform efforts.

Commuter Preference Survey (Washbrook 2002)

A state-preference
survey of suburban automobile long-distance commuters indicate that financial
incentives are the most effective strategy for reducing automobile trips. A
CA$5.00 (US$3.00) per round-trip road toll is predicted to reduce automobile
commuting by 25%, and a CA$5.00 parking fee would reduce automobile commuting
by 20%.

Executive
Summary: Introduction of
drive alone road and parking charges, singly or in combination, was shown to
have the greatest ability to reduce drive alone market share for the commute to
work. Increases in drive alone in-vehicle time had a moderate effect on market
share, as did improvements in the time attributes of carpooling. Improvements
in the time attributes of express bus service had a very small ability to
reduce drive alone market share. In summary, among commuters who presently
drive alone, the greatest reduction in SOV demand can be achieved by increasing
the costs of SOV travel, not by making alternatives more competitive beyond a
base level of service.

Survey respondents
held strong opinions on the concept of road charges and parking charges.
Successful introduction of such charges on SOV’s would require a careful
program of public support building which explained the reasons for introducing
the charges, the environmental and social benefits expected to result from the
charges, and the uses to be made of resulting revenues. Comments from
respondents suggest that support would be highest if revenues collected from
charges were committed to transportation system improvements.

The results of the
study show that, if properly introduced, road and parking charges could be an
effective way of reducing the negative social, economic and environmental
impacts of single occupant vehicle use, and of helping Canada meet its air
quality and emission commitments.

The Pigou Club is an organization of economists who
support special taxes to internalize currently externalized costs, particularly
Carbon taxes and other Fuel
taxes. The NoPigou Club (http://nopigouclub.blogspot.com)
is an organization of economists who oppose such taxes. Debates between these organizations
provide a good summary of the merits of significant fuel tax increases. In
particular, supporters point out that raising fuel taxes is justified on
theoretical grounds, in order to internalize currently external costs, which
increases economic efficiency and equity. Opponents argue that governments are
unable to determine what level of tax is truly optimal, that fuel taxes are a
poor instrument for internalizing many transportation costs (congestion,
parking subsidies, accidents and even roadway costs and most pollutants), that
governments may use revenues inefficiently, that increased fuel taxes are
harmful to the economy, and that such taxes are unfair and politically
unpopular.

Public Attitudes Toward Road Pricing

Public attitudes toward road pricing are a
key factor in road pricing implementation, including whether pricing can be
implemented and how pricing programs should be structured. Below is a list of
research on public attitudes toward road pricing:

Equitable VMT Reduction Strategies (Carlson and Howard
2010)

The report Impacts Of VMT Reduction
Strategies On Selected Areas And Groups, sponsored by the Washington State
Department of Transportation, investigates the equity impacts of the state’s vehicle
miles travelled (VMT) reduction targets (18% reduction by 2020, 30% reduction
by 2035, and 50% reduction by 2050), and ways to minimize negative impacts on
disadvantaged populations. It identified various VMT reduction strategies and
evaluated their impacts on five groups and areas, including small businesses,
low-income residents, farmworkers, distressed counties, and counties with more
than half the land in federal or tribal ownership. It identified ways to
implement VMT reduction programs with the most postitive or least negative
impacts on disadvantaged groups.

An series of experiments performed in the
Netherlands offered financial incentives between €2 to €7 (Euros) per day to
selected travellers if they avoided travelling at peak times. Results suggest
the incentives have had a major effect on travel behaviour, with approximately
20-50% of participants either changing their departure time, switching routes,
or shifting to another transport mode. Table 6 summarizes these results.

Table 6 Summary
of Spitsmijden Experiments
(Donovan 2011)

Location

Incentive

Modifications to
travel behaviour

Departure
time

Route
changes

Mode
shifts

No
trips

1. Zoetermeer

€3

35%

-

10%

1%

2. Gouda

€7

4%

-

14%

3%

3. Hollandse Brug

€4-6

16%

9%

7%

6%

4. Moerdijk Brug

€4

15%

28%

5%

6%

Financial incentives caused travelers to change
their peak-period automobile travel in various ways.

London Congestion Pricing

Litman (2003)
describes the City of London’s congestion charging program, which requires
motorists entering the city’s central area to pay a daily fee (initially
₤5, raised in 2006 to ₤8). Payment may be made by Internet,
telephone or at payment stations. Compliance is tracked by matching license
plate numbers of vehicle in the area (collected electronically by cameras) with
payment records.

Martin Richards’ 2006
book Congestion Charging in London: The Policy and the Politics details
the theory and practice of implementing London’s congestion pricing program,
including background information on the historical and political context. It
includes a review of the development of congestion pricing theory (including
Vickery, Friedman, the Smeed Report, Roth and recent efforts to promote ‘Value
Pricing’ in the U.S.), examples of road pricing methods, discussion of road
pricing experience throughout the world, discussion of the reasons that London
Mayor Livingstone decided to implement road pricing and its role in the city's overall
transportation improvement program, description of the pricing system that was
implemented (including where, when and how motorists pay, and how payment is
verified and enforced), the process for implementing the plan, political
response (including descriptions of supporters, skeptics and critics), analysis
of the first years' experience with the program (travel changes, costs,
revenues, and impacts on congestion, safety, emergency services, parking, and
business activity), a summary of key lessons learned, and discussion of the
future of congestion pricing.

Prud'homme and
Bocarejo (2005) criticize London’s pricing program on grounds that the benefits
(primarily reduced congestion delay to motorists and bus travelers) is less
than the program’s operating costs. However, a response by Mackie argues that congestion
reduction benefits are higher, that there are other categories of benefits to
consider, and that experience in London will allow development of more cost
effective pricing programs in other cities.

European Transport Pricing Initiatives (www.transport-pricing.net) includes various efforts to develop more fair and efficient
pricing. The European Transport Pricing Initiative Newsletter (www.mcicam.net/MCICAM-news.pdf)
provides updates on these programs. Specific European transportation pricing
research projects are described below:

Generalization
of Research on Accounts and Cost Estimates (www.grace-eu.org) is a research program
developing methods of calculating marginal costs of road and rail transport and
apply them to transport pricing reform in Europe.

PROGREURSS (Pricing ROad use for Greater Responsibility, Efficiency
and Sustainability in citieS) (www.progress-project.org)
involves research on road pricing.

REVENUE:
Revenue Use from Transport Pricing (www.revenue-eu.org) assesses current
practice of transport revenue use and develops guidelines for good use of the
revenues from social marginal cost based pricing.

TRACE (www.hcg.nl/projects/trace/trace1.htm)
provides costs of private road travel and their effects on demand, including
short and long term elasticities. Sponsored by the European Commission,
Directorate-General for Transport.

Heike Link and John Polak (2003),
“Acceptability of Transport Pricing Measures Among Public and Professionals in Europe,” Transportation Research Record 1839, Transportation Research Board (www.trb.org), pp. 34-44.

The Pigou Club (www.pigouclub.com) is an organization of economists who support special
taxes to internalize currently externalized costs, particularly petroleum and
carbon taxes. The NoPigou Club (http://nopigouclub.blogspot.com)is an
organization of economists who oppose special taxes to internalize currently
externalized costs, particularly petroleum and carbon taxes.

Adam Smith (1776), An Inquiry
into the Nature And Causes of the Wealth of Nations, The Adam Smith
Institute (www.adamsmith.org.uk).

Steven Spears, Marlon G. Boarnet and
Susan Handy (2010), Draft Policy Brief on the Impacts of Road User Pricing
Based on a Review of the Empirical Literature, for Research on Impacts of
Transportation and Land Use-Related Policies, California Air Resources Board (http://arb.ca.gov/cc/sb375/policies/policies.htm).

David Ungemah and Tina Collier
(2007), “I'll Tell You What I Think!: A National Review of How the Public
Perceives Pricing,” Transportation Research Record 1996, Transportation
Research Board (www.trb.org) pp. 58-65.

Value Pricing and Congestion Pricing
Homepage (www.valuepricing.org),
Hubert H. Humphrey Institute of Public Affairs at the University of Minnesota.

This Encyclopedia is
produced by the Victoria Transport Policy Institute to help improve understanding
of Transportation Demand Management. It is an ongoing project. Please send us
your comments and suggestions for improvement.